Firm Settles FINRA Charges for Failing to Preserve Required Records
Commentary by Glen Barrentine
A firm settled FINRA charges for failing to preserve required records related to retail customer recommendations.
According to the AWC, the firm inadvertently deleted approximately 14,000 records "as it transitioned its business from providing services to retail customers." The deleted records included customer-specific information collected under Regulation Best Interest for recommendations on rolling over employer-sponsored retirement plans into individual retirement accounts. FINRA said the firm did not preserve all relevant information in other maintained records.
As a result, FINRA found that the firm violated Exchange Act Section 17(a) ("Records and Reports") and Rule 17a-4(e)(5) ("Records to be Preserved by Certain Exchange Members, Brokers and Dealers") and FINRA Rule 4511 ("General Requirements") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure and (ii) pay a $30,000 fine.
Commentary
This AWC underscores the importance of having strong procedures in place to safeguard against the inadvertent loss of required books and records. Still, accidents happen and sometimes required records are lost. If this happens, consider whether to self-report the fact of the loss to FINRA. Also, consider whether the firm has a reporting obligation under SEA Rule 17a-11(c), which requires every broker or dealer that "fails to make and keep current the books and records required by Section 240.17a-3, must give notice of this fact that same day ..."
Firms facing this issue should also review the steps that led to the loss and consider whether they may need to make changes to relevant procedures. In other words, firms should be prepared to explain to FINRA what happened and why and what steps the firm has taken to ensure that the problem does not reoccur. Finally, of course, if the problem may negatively impact customers, firms should consider what steps can be taken to mitigate any adverse impact on customers.